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Responsible Investment

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Our Diverse Investment Capabilites

We employ 17 investment teams across a range of asset classes. Each are specialists in their respective fields and set their own investment philosophies and processes. Our commitment to RI and stewardship is a common thread which runs through these diverse investment capabilities. In particular, all teams believe that ESG issues impact investment value and that as a leading global institutional investor we can achieve better long-term investment outcomes through active engagement and by exercising the equity ownership rights we hold on behalf of our clients.

Each investment team’s approach to incorporating these factors into their investment process has evolved over time. We believe the diverse approaches of our individual investment teams are a key strength of our collective business, as they allow us to share ideas, develop our knowledge and learn from each other’s successes. The governance of RI and the systems for cross-team information sharing and collaboration are critical and a significant strength in this regard.

What you can expect when you in invest with us

While we are proud of our diverse investment capabilities and their asset class specific approaches to responsible investment, the following provides an overview of what our clients and other stakeholders can expect from all of our investment teams. The individual team profiles accessible via the top navigation menu provide a more in-depth description of each team’s approach.

For all teams, responsibility and accountability for analysis and integration of ESG factors, investee company engagement and proxy voting rests with each investment professional and the head of the team. Integration of ESG factors and company engagement are mutually reinforcing; company analysis drives engagement and engagement outcomes influence the analysis. This is why we have made the strategic decision not to separate proxy voting, engagement or ESG research and analysis into specialised functions.

Region

Total Staff

Investment Staff

UK Europe and Middle East

348

56

Asia (Including Japan)

190

40

Australia and New Zealand

291

107

North America

31

16

Total

860

219

"For all teams, responsibility and accountability for analysis and integration of ESG factors, investee company engagement and proxy voting rests with each investment professional and the head of the team."

ESG Integration

Listed Equities

Each active listed equity team has a process for identifying and assessing the relevance and materiality of ESG issues for their respective asset classes. For all active equity teams, company engagement is a key source of insights on such risks and opportunities. These insights, coupled with the best available third party ESG research, are assessed by the relevant company analyst and incorporated into stock notes or reviews and influence company valuations.

Some teams assign specific ESG scores, while others incorporate the assessment into broader views of company management and business quality. All active equity teams hold regular team meetings to discuss company assessments, including ESG factors.

Fixed Income

Like our equity teams, our fixed income teams have developed their own approaches to ESG integration that complement their investment processes. All teams within our global fixed income business share significant elements of their investment processes, including analyst resources.

The teams believe that ESG issues have a direct impact upon an issuer's risk and therefore its probability of default. As risks turn into liabilities, they can impact cash flow and, therefore, on debt costs and credit ratings. ESG issues can also impact on a sovereign's ability to generate sustainable revenues or potentially increase its future costs, affecting its ability to repay bond holders.

Our fixed income teams have an assessment process for ESG issues, which flows into their view of a particular security, whether through the six-factor model used by the Emerging Markets Debt team or the ESG score and internal credit rating used by the other Fixed Income and Credit teams.

Unlisted Infrastructure

For our Unlisted Infrastructure team, the ownership interest we currently hold in our portfolio companies ranges from circa 15% to 100%. Our investment professionals are therefore a key part of the corporate governance structure and often also sit on governance and management committees, such as Boards of Directors or Shareholder Representative Groups. Consequently a more bespoke approach to ESG integration is desirable and necessary. The team has developed separate and detailed RI policies and assessment frameworks, while still adhering to the organisation-wide approach.

The team like to take a lead role in any acquisition and lead the agenda in the consideration of all investment issues, including ESG. Furthermore, in instances where we do not acquire a controlling interest, we make sure we carefully select likeminded co-investors so that we have a similar approach to all investment issues, including ESG considerations, which extends to defining strategy and approving policies.

"For all active equity teams, company engagement is a key source of insights on such risks and opportunities."

"Our fixed income teams believe that ESG issues have a direct impact upon an issuer's risk and therefore its probability of default."

"Our unlisted infrastructure team sit on governance and management committees... Consequently a more bespoke approach to ESG integration is desirable and necessary. The team has developed separate and detailed RI policies and assessment frameworks, while still adhering to the organisation-wide approach."

Company Engagement

Given the varying nature of the asset classes we manage, the geographies in which they operate and the size of our holdings, each of our investment teams’ engagement approaches are tailored to individual companies and the specific issues in question. In all cases there is a focus on material ESG issues that could impact on investment value over all periods, but particularly over the long term.

Equities

Engagement with company management is a fundamental part of our equity teams’ investment processes. Through company engagement, we seek to highlight areas for potential improvement and risk reduction, encourage improved disclosure on ESG issues, and commend companies that are making progress in these areas. We have guidelines and principles for corporate engagement, which are available on our website.

On occasions where our engagement activities are unsuccessful and we believe that this will remain so; we may escalate the issue - for example by writing to or meeting with the chairperson or lead independent director, vote against directors who we believe are not providing appropriate oversight, or collaborate on further engagement with other like-minded investors. In some instances we may make our views public. Ultimately, we may choose to sell down our holding where we lose confidence in management following unsuccessful attempts to engage.

Fixed Income

While different to the access and approach that is possible for listed equity teams, our fixed income teams engage with counterparties, corporates, governments and supranational issuers to raise ESG concerns. For counterparties, they conduct a formal ESG assessment, which is provided to the counterparties.

We also engage with credit rating agencies and collaborate with other fixed income investors to improve ESG integration practices across the industry. This is an area where we intend to focus more attention and resources.

"Engagement with company management is a fundamental part of our equity teams’ investment processes... Ultimately, we may choose to sell down our holding where we lose confidence in management following unsuccessful attempts to engage."

"Our fixed income teams conduct a formal ESG assessment for counterparties , which is provided to the counterparties. We also engage with credit rating agencies and collaborate with other fixed income investors to improve ESG integration practices across the industry"

Proxy Voting

Proxy voting rights are an important asset for listed equity investors and exercising these rights is a core part of our stewardship responsibilities. We seek to vote on all possible resolutions at company meetings.

Recommendations from a selection of independent corporate governance research providers are also sought. Our investment teams retain full control over their proxy voting decisions, however, and do not necessarily follow the guidance provided by third party governance research providers.

Each listed equity team's profile (available from the top navigation bar) discloses statistics on the independence of our team’s voting and we also provide a ‘live’ proxy voting page which discloses all voting decisions post meeting.

All teams have an approval and escalation process for proxy votes and maintain records when they vote against management or against the recommendations of the proxy voting adviser. Investment teams are responsible for voting in their clients interests and so from time to time, different teams may vote in different ways on the same issue.

"Our investment teams retain full control over their proxy voting decisions, however, and do not necessarily follow the guidance provided by third party governance research providers. In the team profiles section of this report, we have disclosed statistics on the independence of our team’s voting and also provide a ‘live’ voting tool page which discloses all voting decisions post meeting."

Exclusions

Cluster Munitions

We exclude cluster munition and land mine manufacturers. The criteria were established under our cluster munitions policy which was approved by the Global Responsible Investment Steering Group. The companies captured by the policy are reviewed annually with any changes reported in this report.

Sanctioned and High Risk Countries

We also exclude sanctioned and very high risk countries, companies domiciled in those countries and individuals. The process includes a two-tier system whereby some countries are completely blocked (such as Iran, North Korea and Syria) and others are heavily restricted.

For sanctioned and high risk countries we enforce country level restrictions based on the constituents of the Australian Department of Foreign Affairs and Trade (DFAT) Sanctioned Countries List and similar lists issued by Governments in other jurisdictions where our funds are domiciled. The constituents on each system are regularly reviewed and updated.

Any potential investments in companies domiciled in these countries would be rigorously screened to ensure that there is no association with any sanctioned individual, entity or regime prior to investment. No investment is possible in companies domiciled in any country on the DFAT list without clearance from Investment Compliance personnel as the system controls do not allow it.

In addition our controls include screens for any potential investment from a country deemed to be 'very high risk' in relation to politically exposed persons, sanctions and ultimate beneficial ownership controls. The scope of this framework will be wider than the sanctioned countries list and the countries deemed to be 'very high risk' are updated on a regular basis.

Companies subject to our cluster munitions policy:

Hanwha Corporation

Poongsan Corporation

Changes since last period:

Orbital ATK - confirmed at the beginning of this year that it is no longer involved in the development, production, maintenance or sale of cluster weapons. (NYSE:OA)

Textron Inc - confirmed at the beginning of this year that it is no longer involved in the development, production, maintenance or sale of cluster weapons. (NYSE:TXT)

The listing of Motovilikha Plants JSC has ended due to a bankruptcy application.

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This site, and the information on it, are provided for information purposes only and do not constitute an invitation, offer or solicitation to engage in any investment activity including to buy or sell any investment including any interest in any fund. Any financial service or investment involves risk. Past performance is not a reliable indicator of future performance. The value of investments and the income from them can go down as well as up and investors may not get back the amount originally invested.